The next of kin have been informed. One other Briton involved in the crash remains in a stable condition.

Witnesses described hearing a "frightening bang" which shook houses several miles away as the balloon exploded.

The other casualties of the crash include two French tourists, four Japanese nationals and nine tourists from Hong Kong, according to reports.

The Foreign Office said: "We can confirm the tragic deaths of two British nationals and one British resident following a hot air balloon crash in Luxor, Egypt earlier today.

"The next of kin have been informed and our thoughts are with them and their families at this difficult time. We are providing them with consular assistance. We can also confirm that one other British National was involved and is in a stable condition.

"We have had consular officials in Luxor since early this morning who have been focussed on providing consular assistance and supporting the Egyptian authorities.

"Our Ambassador to Egypt has met the injured British national and has offered our assistance."

Peter Fankhauser, CEO of Thomas Cook, which is working with the Foreign Office and Egyptian authorities to establish what happened, added: "What happened in Luxor this morning is a terrible tragedy and the thoughts of everyone in Thomas Cook are with our guests, their family and friends."

Thomas Cook has set up an emergency phone line for concerned relatives on 0800 107 5638.

One other person, believed to be the Egyptian pilot of the balloon, is also thought to have survived the crash. He is reported to have survived by jumping from the balloon's basket when it was around 50ft from the ground.

Luxor Governor Ezzat Saad has now cancelled all hot air balloon flights in the area, while Prime Minister Hesham Qandeel has ordered an investigation into the accident.

It is not known what caused the balloon to catch fire and crash. There are reports that the pilot's landing cable became caught around a helium tube which resulted in the blast.

One witness told the BBC the balloon may have hit a high-pressure electrical cable before the explosion.

UK travel organisation Abta said: "We are aware that there have been a number of injuries and fatalities including British nationals following an incident involving a hot air balloon trip in Luxor, Egypt, operated by a local company, Skycruise.

"It is understood that at least 20 people were on board the flight, although it has not yet been confirmed how many of these are British nationals.

"We are working with our members, the Foreign Office and the Egyptian authorities to ascertain more details about the incident. We will issue further information once it becomes available."

Luxor has seen crashes in the past. In 2009, 16 tourists including two Britons, were injured when their balloon struck a communications tower. A year earlier, seven tourists were injured in a similar crash.